Kenyan shilling strength in question as bonds tighten

The Kenyan shilling has shown remarkable strength in the first quarter of the year, surging by an impressive 15.2 percent against the dollar. Currently trading at Sh131 against the dollar, the shilling's resilience has been a topic of discussion, especially as the government's bond issue number FXD12023 tightens. George Munga Amolo, a Financial Analyst and Managing Partner at AMG Consulting Group, shed light on these developments during a CNBC Africa interview. Amolo highlighted that central bank intervention played a significant role in stabilizing the currency. He noted that tight liquidity conditions in February and March, resulting from maturing euro bond debt, were successfully managed by the government through negotiation and refinancing, thus easing pressure on the Kenyan shilling in the last quarter. However, with a looming $500,000 repayment obligation for the euro bond in June, Amolo anticipates potential depreciation of the shilling due to liquidity pressures likely to be faced. Despite this, the current stabilization and strengthening of the currency have positively impacted the country's debt stocks, reducing the quantum value by 15.2 percent. Looking ahead to June's euro bond repayment, there are concerns about the shilling's stability. Amolo expressed confidence in the Central Bank's ability to support the currency post-repayment, citing the accumulation of sufficient foreign exchange reserves as a key strategy to uphold the shilling amidst potential challenges. He emphasized the importance of liquidity management, especially during the critical period between May and June. Shifting focus to the bond market, discussions revolved around the recently issued two-year reopened treasury bond (FXD2023) with a performance rate of 117 percent. While this performance demonstrates confidence in the government's repayment capabilities, Amolo highlighted a downside related to the crowding out of the private sector. Due to the government's high borrowing rates, banks and fund managers are inclined to lend to the government rather than the private sector, affecting overall economic growth. Moreover, rising interest rates pose risks for the future economic landscape. With current interest rates between 18 and 21 percent, borrowing for private sector players becomes challenging, leading to a slowdown in economic expansion. Amolo pointed out that unless the government adjusts its borrowing practices, particularly reducing reliance on domestic borrowing at high rates, the persisting high interest rates are likely to hinder the country's growth prospects. In conclusion, the Kenyan shilling's strength faces uncertainties amidst bond tightening and looming debt repayments. While the current stability is a positive indicator, challenges lie ahead, necessitating proactive measures from the government and the Central Bank to safeguard the currency's value and ensure sustainable economic growth.